Industry outlook
39 Resilience, recovery, acceleration by Sir Martin Sorrell
S4Capital Annual Report and Accounts 2020 37 Industry outlook
38 S4Capital Annual Report and Accounts 2020 2
Digital adoption has accelerated On the whole, covid-19 didn’t create Resilience, new trends; it accelerated existing ones. Digital adoption was stepped up by consumers. During the early days of the pandemic some 30% of US households recover y, went online for groceries for the first time; online education took off; and streaming went through the roof. Disney+ was targeting 70-80 million consumers by 2024, but it acceleration rapidly went to 100 million (and forecasts 240 million for 2024) and found itself competing with Netflix. By Sir Martin Sorrell Alan Jope tells the story that when he was running Unilever in China during the SARS outbreak, there was this massive surge among You have to find the silver linings Chinese online; in 2020 we saw a similarity The nature of our client base contributed when Nike gave away their fitness app to significantly to our resilience during the the Chinese consumer for free – it sparked a pandemic. Technology and healthcare significant uptick in online activity. together account for more than half of our The tech giants, whether Google, Facebook client spend and those were sectors that and Amazon, or Alibaba, Tencent and Tik- didn’t stop their marketing and in some Tok are all set to emerge from the pandemic cases reinforced it. Our people played a huge stronger than ever. Digital adoption has part; they are entrepreneurial and can turn also been stepped up at enterprise level. on a sixpence. And our values of ‘speed, Before the pandemic, fmcg companies were quality, value’ or ‘faster, better, cheaper’ jogging along at 2% or 3% or 4% each year were paramount. with no inflation, zero pricing power and EPS During lockdown, clients were more available gains squeezed from focus on costs and than ever before and wanted to talk about share buybacks. the challenges they faced, at a time when our Covid-19 blew a hole in that, and as a result competitors were often hiding from view. the change agents in these companies have Then we found three revenue streams that been given much more oxygen. The package simply exploded. Animation – as any of the goods companies started deploying more Hollywood studios will attest – went vertical, money to digital because that’s where the for the simple reason that you don’t need harder sell can be made at times like these. people. Robotics was another. When we And as one ex-CMO told me: “If Amazon isn’t acquired Caramel Pictures, we’d laughed that copying your business model, you don’t have we’d bought more robots than people, and a good one.” now that proved prophetic. The third area was the conversion of live events to online events, which enabled us to deliver some very effective virtual experiences for major clients.
S4Capital Annual Report and Accounts 2020 39 Industry outlook
Resilience, recovery, acceleration continued
Pandemic patterns World economic outlook growth projections
Vertical Shape January 2021 Technology & telecom V World output Data & analytics V Ecommerce V 2 FMGC/CPG V/U 2 SMB/Agencies U/L
Travel & leisure L 20 2020 202 2022 Financial services V
Retail online V Retail offline L Advanced economies Auto U/W Media & entertainment V/U Pharma/healthcare V
Telemedicine V 20 2020 202 2022 Fashion & luxury U
Emerging markets and developing economies 0
20 2020 202 2022
2 Source: imf.org
Revenue of selected tech 2 0 companies 2020v2019 Q3 2019 2020 2 2 0 2
Sources: Statista; company flings
40 S4Capital Annual Report and Accounts 2020 2
A reverse square root recovery advertising would go up a bit faster. Right now During 2020, I was sent an employment graph I believe that’s true specifically of digital for US non-farm payrolls. It was eerie, it showed advertising. Brightblue – MightyHive’s data a square root sign precisely in reverse: a sharp analytics and measurement consultancy – fall followed by a sharp recovery, but not quite ran an analysis and what they found was to the levels it was before. That’s going to be a strong correlation between digital ad the overall shape of the economic recovery, spend and consumer confidence. That has but there’s quite a lot of variation in between. implications for media. Print won’t disappear, In sectors like tech and healthcare, games and but newspapers will increasingly go online. online financial services, online education and And streaming services will open up to online groceries it has already looked like a V. advertising. Last summer the millennials in the In fmcg, autos and luxury goods it could be house where I was staying were amazed when more of a U or even a W. And for the hardest hit I put on Spotify and it had ads between the sectors – travel, hospitality and offline retail, for songs. My view is that Netflix will go the same example – it will be more of an L. In the worst way; it will take ads and keep ad-free content cases it could even be chair shaped, but we at a premium price. So traditional TV channels haven’t come across this yet. are going to be under new pressure from the streamers. I’m very bullish on 2021, which will be like 2010 all over again, and on 2022, when the The old and the new general forecast is for global GDP up 4-4.5%. “A foolish consistency is the hobgoblin of little (When was the last time we saw GDP growth minds,” Ralph Waldo Emerson once wrote, at those levels?) One reason for optimism is by which he meant that doing things the same that governments are going to pump-prime the old way will get you nowhere. The holding recovery. During the Global Financial Crisis, company idea has been around for far longer it took a long time for US Treasury Secretary than people realise (Marion Harper invented it Hank Paulson to get Congress to agree to at IPG in the 1950s when he saw it as a way the TARPs (Troubled Asset Relief Programs) to grab extra market share). because people thought the banks were to The advertising holding companies were trying blame, so why bail them out? But this time to simplify their structure before covid-19 covid-19 has affected everybody, so morally came along, but if anything, they’ve become governments have to get everybody back on more vertical. They’ve also had to cut jobs and their feet. Of course, it’s not going to be even: seen their profits disappear as the pandemic China has made an astonishing comeback, exposed their frailties. So our view, that the others like Brazil have been much harder. only solution is for private equity to break But the next two years are going to be strong. them up, hasn’t changed. Otherwise, they will We are crossing a rubicon become zombies, or the walking dead. From now on, most advertising will be To change something, you build a new model digital. Magna reckoned that in 2020 global that makes the existing one obsolete, said advertising shrank by 4.2%, but spending another wise old bird, Buckminster Fuller, and on digital formats rose 8% to reach an that’s what we’ve done. Today the holding overall share of 59%. WPP put the growth companies aren’t our biggest competitor, in digital at 5%. Whatever the actual figure, it’s Accenture. what’s clear is that from now on, digital is In the last 12 months, our own model – digital going to be the majority of all advertising. only; our holy trinity of first-party data, digital MoffettNathanson has predicted 20+% content and digital media; faster, better, cheaper; growth for US digital in 2021, and a market and our unitary structure – has gained significant share of nearly 70% by 2024. traction. We’ve passed the phases of brand When I worked at Saatchi & Saatchi in the awareness, brand trial, and proof of concept. 1960s and 1970s, we always reckoned We are well on course in our ambition to make that if GDP went up in the UK by 1%, then us the relevant agency of the next decade.
S4Capital Annual Report and Accounts 2020 41 Industry outlook
Resilience, recovery, acceleration continued
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Growing our whoppers at scale: winning big. And in 2021 one of our People say marketing’s about the sizzle, key objectives is to add some sizzle to those not the sausage. But you need some meat whoppers we’ve already landed. (or its vegan equivalent) on the griddle in At one with ourselves order to build your business. In 2020, we set In 2021 our unitary vision will come to fruition. ourselves a ‘20 squared’ target, to develop This year we will re-brand MediaMonks and 20 clients, or ‘whoppers’, each generating MightyHive as one firm with one P&L, just like more than $20 million revenue per year. Goldman Sachs or McKinsey. We’ve been (I took the idea unashamedly from the working towards this since the moment S4 admirable marketing tech company Globant, was formed, and all our people have really and when the Financial Times interviewed me come on board with that strategy. It’s the in November 2020, I tried to persuade them opposite of the market share model where to do it in a Burger King outlet.) By the end you buy extra brands to get a little bit more of 2020 we had secured five for 2021: Google; share; it’s about building something that is our major NDA tech company; BMW/MINI; excellent, in which everybody works together Mondel z; and Facebook. Now, two more and has a shared purpose. And more than are on the cusp already. that, it’s a commitment to all our stakeholders We’ve already identified another 10 potential to provide the best our industry has to offer. whoppers, companies where we have For our clients, we are their Partner of Record $5 million, $10 million or $15 million of – an engine of innovation and a source of existing revenues; or $2 million to $10 million agility. For our people it will mean growth of revenue; we have to identify a further five. opportunities; the ability to join A-class It will take us a few years to get there. teams; the chance to learn from others One way we can win whoppers is by adding around the world; and helping to build the and adding more revenue with our existing very best workplace. Right from the start clients – that’s actually the better way to do it. we said we will not acquire other agencies; Of the five we have, three are tech clients, and they will merge with us and ‘buy into’ our that’s how we want to keep it, with the ratio of vision and mission. And during the pandemic tech whoppers at 55% or 60% so that we will that sense of unity has been a real source always be tech focused. Tech companies look of strength: all for one, and one for all. Or, at the sky, some others look at their boots. to adopt Young & Rubicam’s mantra of the Our whopper strategy is all about conversion 1990s, “Better together”.
Whoppers, coiled springs and reverse square roots 1 2 Watch Sir Martin Sorrell in conversation with Firewood founder, Lanya Zambrano, looking back at the transformational changes in 2020 and seizing the decade to come. 1. Sir Martin Sorrell, Founder and Executive Chairman, S4Capital 4 www.s capital.com/annualreport20 2. Lanya Zambrano, President and Founder, Firewood Marketing
S4Capital Annual Report and Accounts 2020 43 Industry outlook
Resilience, recovery, acceleration continued
Rome wasn’t built in a day Quality is paramount as we look to expand. Our third objective for 2021 is to broaden As Maurice Saatchi used to say, if you’re the our services through more mergers. We have best, you become the biggest. So our first already invested heavily in data analytics objective is to be the best, but after that, alongside content and production capabilities; who knows? marketing systems integration will be another A lesson from underground very significant area going forward. We are Remember a decade ago the 33 Chilean cash rich after our fund raise, and compared mining engineers who were trapped to private equity, with whom we are competing 700 metres underground? At first it looked to make these deals, our time horizons impossible that anything could be done to are much longer. We ask our technology save them, but the President nevertheless said partners to tell us who the good companies he would get them out one way or another. are. And we have a clear set of criteria for A 24-year-old field engineer, Igor Proestakis, the deals we are looking for: strong top-line gave him an idea, and they dug a borehole growth; good margins; companies that are into which they could insert a capsule that not technologically dependent but part of the was just big enough to hold a person. After 69 service sector; and the management has a days, every single one of Los 33 was rescued strong shareowner interest in the business. alive. The Harvard Business Review wrote We do need to tweak the balance as we move a fascinating case study about this mission forward. Geographically, at the moment we (https://hbr.org/2013/07/leadership-lessons- are split 70:20:10 (on a gross profit basis) from-the-chilean-mine-rescue). between the Americas/EMEA/APAC and we’d It showed the power of the combination of like that to be 40:20:40, although where we experience and wisdom on the one hand, are ain’t bad with the huge Biden injection into and intelligence and fearlessness on the the US economy. Discipline wise, we are split other. But what it really demonstrates is that 70:30 between Content and Data & Digital nothing’s impossible if you set your mind Media; and we’d like that to be 60:40. to it, and that’s a lesson our people prove day after day. They are our best asset: every single one has a contribution to make, and we are constantly on the lookout for talent. If you bring together people with different backgrounds, experiences, cultures and disciplines, and give them the chance to grow, If you bring together you can achieve extraordinary things. Metamorphosis and other short stories people with different We don’t own technology, but we do share some of the growth characteristics of tech backgrounds, stocks. 2020 saw our fledgling Group make remarkable progress, both in winning the trust of some of the world’s top brands and being experiences, cultures joined by exceptional businesses around the world. All that was achieved in the face of the and disciplines, and greatest global crisis in decades. Our original three-year plan envisaged us doubling both our top and bottom lines between 2019 and give them the chance to 2021 – our 2020-2023 plan had the same objective. The new marketing age is up and grow, you can achieve running and, thanks to our investors, the peanut has now metamorphosed into a triple extraordinary things £ and quadruple $ unicorn.
44 S4Capital Annual Report and Accounts 2020